The Big Four accounting firms – EY, KPMG, PwC and EY – have been undercharging some of the UK’s biggest companies to carry out audit work, evidence published by the business, energy and industrial strategy (BEIS) committee has suggested.
The sector is currently under review by the BEIS as part of its ‘future of the audit sector’ inquiry and it asked the accounting firms to provide details of budget overruns with respect to FTSE 350 audit clients and entertainment expenditure.
Over the past five years, audit costs for PwC were more than 10% over budget; in 2013/14, this accounted for 55% of the audit costs for FTSE 350 companies, 60% in 2014/15; 55% in 2015/16; 37% in 2016/17 and 43% in the financial year 2017/18. It negotiated additional fees between 58% and 83% of the time.
For EY, this was 25% in 2013/14; 26% in 2014/15; 31% in 2015/16; 44% in 2016/17 and 32% in 2017/18. The firm said it took these costs up with the audit committees between 53% and 67% of the time.
KPMG said over five years, 75 clients (16%) had costs 10% or more in excess of the amount budgeted and in 62 (83%) of these cases it took up the situation with the audit committee to increase fees and in all those cases an increased fee was agreed.
Deloitte said 50% of audits had overruns of more than 10% of the original budget. Of the 50% that did cost more, 80% resulted in an additional payment (24% receiving payment for
the overrun in full and 56% receiving payment in part). Some 20% of audits did not result in an additional payment. It went on to say it did not have data on whether overruns were specifically raised with the audit committee or not.
The four firms also submitted evidence on how much they spent entertaining clients, a practice which is effectively banned by regulators.
For the year ending 2014, PwC spent £73,000 and saw 38 non clients subsequently become clients by 1 March. Its spend decreased each year, as it spent £3,000 in 2018 and saw eight companies subsequently appoint it as auditors.
Deloitte only provided information for two years; in 2017 an average of £1,352 was spent on hospitality for each FTSE 350 company that it audited (a total of £120,321), and an average of £1,106 spent in 2018 (a total of £96,179).
KPMG’s lowest entertainment spend was £51,889 in 2018 and its highest was £116,215 in 2015. EY’s lowest spend was £98,213 in 2018 while its highest was £218,097 in 2015.
BEIS is expected to publish a full report on its inquiry tomorrow (2 April).